HSBC has acquired Silicon Valley Bank UK for £1, following the US Bank’s closure by regulators on Friday. The Bank of England (BoE) and HM Treasury have facilitated the transaction using powers granted by the Banking Act 2009.
Chancellor Jeremy Hunt has confirmed that the deal has protected all customer deposits and that no taxpayer cash was involved in the process. The acquisition comes after a weekend of intense negotiations aimed at preventing further financial fallout.
By making use of post-crisis banking reforms, which introduced powers to safely manage the failure of banks, this sale has protected both the customers of SVB UK and taxpayers, HM Treasury said.
The takeover overrides the BoE’s initial decision to place SVB UK into insolvency, after the US bank was closed and its assets seized by authorities on Friday.
The reaction to HSBC rescue deal
“This will be a huge relief for startups across the country, said Dom Hallas, executive director of the Coalition for a Digital Economy (Coadec) – a UK-based non-profit organisation that supports digital startups. “The government deserves huge credit from the very top, to HM Treasury who understood the challenge and gripped it, to the huge number of civil servants who have likely not slept since Friday. It’s glib to say it – but there are hundreds of founders around the country who will thank you for your work.”
“Shouldn’t be underestimated”
Haakon Overli, general partner of investors Dawn Capital, said: “On behalf of our Dawn companies with 2,400 employees in the UK, we welcome the hugely positive news of HSBC’s acquisition of the UK arm of SVB announced this morning. The scale and magnitude of the crisis which has been averted in the UK tech sector shouldn’t be underestimated.”
“What really matters is innovation”
Prime Minister Rishi Sunak, said: “We have worked urgently over the weekend, listening to stakeholders and developing an appropriate solution to provide Silicon Valley Bank UK customers with confidence and security. I’m often painted as some kind of tech geek. That’s a label I’m actually proud of.
“I will always be on the side of entrepreneurs, innovators, young people inventing the future. Because the biggest lesson I took from my time in California still guides me now. What really matters for economic success – is innovation. If we want our country to succeed, we need to do what we’ve always done and embrace new technologies, and the people and culture that creates them. No serious analysis of our prospects could conclude anything different.
“I hope SVB UK customers feel reassured today by the strength, safety and security that today’s news brings them.”
“Credit for rapid response”
Alessandro Hatami, managing director of strategic consultancy Pacemakers and co-author of Reinventing Banking and Finance, said: “This is a good outcome for the UK tech and life sciences sectors. HSBC is an excellent buyer that will not only support Silicon Valley Bank UK, it could help the rollout of SVB’s innovation friendly approach to EMEA.
“What’s more, HSBC’s much more prudent and professional risk management approach will ensure that there is no repeat of mistakes made by SVB’s senior team in the US in addressing the bank’s capital requirements.
“The Chancellor, the Bank of England and HSBC deserve credit for developing a rapid response to a situation which, while not systemically a risk for the UK banking sector, had potentially serious implications for the UK’s tech and start-up companies that have an estimated £6.7billion worth of deposits with SVB UK.”
“Bold action appears to be working”
‘’Investors are waiting with bated breath to see if this rush of regulatory activity to try and limit the fallout from the SVB bank collapse will help soothe volatile markets and so far the bold action appears to be working,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition. This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day, as a big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.”
“Makes strategic sense”
Noel Quinn, group CEO at HSBC, said: “Buying SVB makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and lie-science sectors in the UK and internationally.”
The Bank of London, which also made a rescue bid for SVB UK over the weekend welcomed news of a solution but has criticised the sale to HSBC. In a statement, it said:
“It is great news that a speedy solution has been found for Silicon Valley Bank UK Limited, and the thousands of businesses it supports across fintech, life sciences and new technologies. It means a vital community helping to foster innovation in our country continues to receive banking services without interruption.
“For many, this will be seen as a missed opportunity to support competition and innovation. It cannot be right that once again the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant position. Britain needs better. For our part, we at The Bank of London stand ready to serve the entrepreneurial community of the UK.”
What’s happening in the US?
All clients of Silicon Valley Bank will have access to their funds from Monday at no cost to US taxpayers, US financial regulators announced on Sunday.
Regulators revealed the measure in a joint statement from the treasury secretary, Janet Yellen, the Federal Reserve chair, Jerome Powell, and the Federal Deposit Insurance Corporation (FDIC) chair, Martin Gruenberg.
Their announcement followed the news that New York-based Signature Bank had also collapsed. Experts say that with $110billion in assets, Signature Bank is the third-largest bank failure in US history. Last week also saw crypto lender Silvergate Capital announce that would be winding down operations and liquidating its bank.
“Silicon Valley Bank isn’t the last bank which will make the news”
Richard Gardner, CEO of Texas-based artificial intelligence startup Anthropic AI, said: “While Secretary Yellen, Fed Chair Powell, and FDIC Chairman Gruenberg released a joint statement which aimed to reassure Americans and restore public confidence in the banking system, it is important to consider how we ended up in this particular situation. As banks continue to come under fire, the public needs to understand how we got here.
“As interest rates have soared, banks with assets stuck in long-term treasury bonds and other investment vehicles worth less than today’s offerings, are having trouble fielding enough cash to deal with major withdrawals. When banks attempt to access more capital to ensure liquidity, depositors get more skittish. As depositors get more skittish, potential investors pull the plug. In short, Silicon Valley Bank isn’t the last bank which will make the news.”
“A tale repeatedly told”
Arthur Weissman, co-founder of digital platform Industry FinTech, said: “The sudden collapse of Silicon Valley Bank brings memories for all of us in the world of banking and finance back in 2008 and 2009. While the reasons for SVB’s problems may differ from before, the results seem to be the same. History, as they say, doesn’t allows repeat itself, but it does rhyme.
“SVB fell victim to a one-two punch. They focus most of their business in the technology space, specifically with the high-flying silicon firms, their founders, VCs, and stakeholders. This approach has helped them grow quickly as the tech world has grown. But, it also added concentration risk. Punch One. As the tech world has suffered through its contraction, the bank’s clients have been withdrawing funds instead of depositing them.
“Punch Two. So, as clients withdrew funds, this forced the bank to sell some assets at a loss. As this happened, the bank needed to raise additional capital to meet reserve minimums. That became public knowledge, and then more clients withdrew funds, forcing more sales of assets and losing more money until the government takes over, which always happens in this case.
“A tale repeatedly told when banks weren’t prepared for long-tail risks. Once again, the importance of transparency, risk management, corporate governance, and compliance becomes just as consequential to an investor as the business operations.
“Of course, there is no knowing if the management team at SVB violated any rules or operated improperly. We may only learn over time what transpired there. But, if SVB or any similar firm would embrace the functions that help define a quality, compliant organisation, the seemingly instantaneous collapse may not have happened as quickly and have been such a shock.”
“The Silvergate and SVB challenges and the corresponding direct and indirect reduction in banking services available to the digital asset space are a wakeup call for all the companies out there looking to ‘abstract’ away the banking world by offering banking as a service, virtual accounts, foreign exchange accounts or other ‘for benefit of’ (FBO) accounts,” said Alex McDougall, CEO of Canadian fintech Stablecorp.
“If there was ever a time to align on standards for transacting ‘FBO to FBO’ rather than forcing banks to be a direct intermediary of every transaction, it is now. As easy solutions vanish, the ‘ready-made’ infrastructure of Web3 and digital assets becomes, in some cases, the only option for business built in the Web3 space so it is time for the financial solutions providers to the Web3 space to really step up their game.”